EXMACHINA

Our Collection of the Leading Voices in Autonomous Learning Investment Strategies (ALIS)

AIMA - The Alternative Investment Management Association

What a long strange trip it’s been…on ALIS

Michael Weinberg

We have titled this paper with an ode to a compilation album by a band that was founded in Palo Alto and developed a counter-culture. Though the title espouses a new state of mind, it is investment, not consumption driven, as this is 2017 and not 1965.

There is a book written by John Markoff entitled What the Dormouse Said, and those with a penchant for ’60s music may recall this is a line from a Jefferson Airplane song based on Lewis Carroll’s classic book, Alice’s Adventures in Wonderland. For those not familiar with Markoff’s book, a primary point is that today’s personal computer is largely a derivative of Stanford and its/the counter-culture. It was this counter-culture that revolutionized society in ways that no one then could dream of ex-ante, and are only obvious now, ex-post. In line with these themes, in our website, www.mov37.com, we include allusions to Carroll’s book through the titles of our “ALIS Through the Looking Glass” and “ALIS Down the Rabbit Hole” sections.

“ALIS” is an acronym we have created for “Autonomous Learning Investment Strategies”, which we believe are an emerging “third wave” of investment managers, the first and second being fundamental discretionary and quantitative investing, respectively. ALIS are smaller managers taking of advantage of recent advances in artificial intelligence and machine learning, combined with an explosion in data availability and inexpensive cloud computing, to generate alpha at a fraction of the cost of traditional managers. (For a fuller explanation of ALIS managers, we recommend reading the canonical paper on them by Jeffrey Tarrant, entitled “The Intelligent Investor in an Era of Autonomous Learning”, available on our website.)

Just as the Grateful Dead developed a counter-culture, ALIS managers are also. Whereas the first wave of investing was comprised of MBAs, the third wave is comprised of PhDs. Though some ALIS managers are based in New York and London, as the MBAs and Wall Street or The City are, many are based in Palo Alto and San Francisco, homes of the original counter-culture and Silicon Valley. The counter-culture of the ’60s often sprouted from the world’s leading universities, which is where ALIS managers also are germinating.

Reverting to the title of this essay, we have spent the last couple of years traversing the globe, far beyond New York and London, including Israel, Asia, Canada, Silicon Valley, university towns, The South (in the US) and suburbs in our quest to locate the world’s best ALIS managers, and it has been a long, strange trip. We have found 200 managers that portend to be ALIS managers. For context, this compares to one of the world’s preeminent hedge fund databases that has only identified a fraction of that.

In George Orwell’s Animal Farm he states that all animals are equal but some are more equal than others. Similarly, our take on ALIS managers is that they all are equal but some are more equal than others. In the land of ALIS there is a wide spread between the best and the worst, and most managers are far from average.

We shall now share with the reader some of our adventures researching ALIS managers around the world, organized into sections on the genres of ALIS managers we would and would not invest in. To do this, instead of obscuring and altering certain details so that it’s not overtly apparent which managers we are referring to, we will simply speak very generally, just as Barton Biggs did in his book about first wave investing, Hedgehogging.